US steel prices
In the previous part of this series, we noted that China’s economic slowdown is leading the country to export more steel. Another factor driving Chinese steel exports is the differential between Chinese and global steel prices. Steelmakers including United States Steel Corporation (X), ArcelorMittal (MT), AK Steel Holding Corporation (AKS), and Nucor Corporation (NUE) frequently speak out against imports of cheap Chinese steel products, as it harms their profits. However, steel fabricators and end users stand to benefit by using lower-priced Chinese steel products.
One of the key drivers of US steel imports has been the differential between the US and international steel prices. Spot HRC (hot-rolled coil) prices in the United States are almost $80 per metric ton higher than in Europe and more than $180 per metric ton above the prevailing spot HRC prices in China, according to data compiled by SteelBenchmarker. Moreover, SteelBenchmarker estimates the world HRC export price to be $283 per metric ton FOB (free on board), which is approximately $150 per metric ton higher than the prevailing spot HRC prices in the United States. You can look at the price differential between US and global HRC prices in the graph above.
Imported steel is cheaper
Even after accounting for the shipment charges including inland shipment costs within the United States, imported steel turns out to be much cheaper than what US steel mills are currently offering. Although the United States (SPY) has imposed anti-dumping duties on several countries including China, the difference between US and international steel prices could continue to serve as incentive for US companies to import more steel.
In the next part of this series, we’ll further discuss what path US steel prices might take in 2016.